Goods and Services Tax (GST) Bill
The Goods and Services Tax Bill or officially The Constitution(122nd Amendment) Bill, being hailed as one of the historic indirect reforms of the country has moved one step closer to reality with Rajya Sabha passing the bill with full majority. The bill being a Constitutional Amendment further requires ratification by 50% or more state legislatures to be finally sent for the Presidential assent. National Council for Applied Economic Research and others including the present Finance Minister have estimated GDP growth can go up by 1-2% by the implementation of GST Bill.
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( NOTE: If you want to download the GST Bill PDF, CLICK HERE )
GST was first discussed in Kelkar Task Force on indirect taxes in the year 2003. GST Bill was introduced in Lok Sabha as The Constitution (115th Amendment) Bill in 2011 and lapsed due to the dissolution of 15th Lok Sabha. At that time our present PM was CM of Gujarat and one of the many protestors against the bill. It was again tabled as The Constitution (122nd Amendment) Bill in Lok Sabha in December 2014 and passed by Lok Sabha in May 2015 but got stuck in Rajya Sabha due to the minority of NDA government in the Upper House. Finally, Rajya Sabha passed the bill with AIADMK walking out showing its discontent for the proposed bill as it hampered the state’s fiscal autonomy.
MEANING OF GST AND NEED FOR CONSTITUTIONAL AMENDMENT
GST stands for Goods and Services Tax. Presently goods and services are taxed separately by separate governments i.e. central and state. The Constitution empowers state government to levy VAT on a sale of goods(no power to tax services) while Central government to levy excise duty on the manufacturing of goods and service tax on services(no power to tax sale of goods).
A Constitutional Amendment was needed to empower both the state and central governments to tax both goods and services.
DIFFERENCE BETWEEN VAT AND GST
The earlier system of sales tax had a huge cascading effect which was solved to some extent by the present VAT system where taxation was done at the value which was added at each step hence ‘tax on tax’ was avoided. But VAT system has not fully served its purpose and still has some loopholes like state VAT covers only sales and does not include other taxes like entertainment tax, octroi and entry tax etc. Hence once the bill is passed all these taxes will be subsumed under GST and completely remove the cascading effect of taxes.
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NEED FOR GST
India has always relied on indirect taxes for its revenue and the reason being first, India’s population is predominantly poor and income tax (direct tax) couldn’t be levied on them and secondly, agricultural income (55% of total population) is exempted from income tax. If the government is losing its revenue in the form of income tax, it compensates it by levying various kinds of indirect taxes. The multiplicity of indirect taxes (excise duty, service tax, state VAT, CST, octroi etc) has led to a complex tax structure and implementing GST will help it simplifying by promoting the theory of ‘One nation, One tax’.
SALIENT FEATURES OF THE BILL
It is very important for us to understand and look at some of the salient features of this Bill.
So, the following are some of the salient features of the GST Bill :
1. GST consists of two components: CentralGST (levied by centre) and StateGST (levied by state) on all the goods and services except for those which are exempted under the bill.
2. Bill empowers the state and central legislature to levy GST and make laws on it concurrently. But central government will have exclusive power to levy and collect GST as Integrated GST or IGST in the case of inter-state trade or commerce.
3. Central indirect taxes (Central excise duty, service tax etc),State VAT,entertainment tax,octroi and entry tax all subsumed under single GST.
4. Potable alcohol has been kept out of the purview of GST while five petroleum products will come under GST at a later stage.
5. Bill calls for the formation of GST Council consisting of Union Finance Minister(Chairman), Minister of State for Revenue or Finance, Minister in charge of Revenue or any minister appointed by the state government which will make recommendations on:
i) rates of GST
ii) taxes under GST
iii) goods and services to be exempted from GST, etc..
6. Parliament would provide for compensation of revenue loss occurring to the state for implementation of GST for a maximum period of five years.
There are some benefits of the Goods and Services Tax (GST) Bill that we will see here.
So, Following are some of the Benefits of the GST Bill :
1. Hampering of inter-state trade due to multiple taxation points and different octroi and entry tax in different states will be removed once a unified GST is put in place
2. GST aims at removing the cascading effect of the taxes i.e. tax on tax.
3. GST is a great example of “Co-operative federalism” where states have agreed to give up their exclusive rights to tax sale of goods while the centre has given up its right to impose excise and service tax.
4. Presently many services are not taxed while goods are taxed more heavily creating a biassed against manufacturing.
5. A single tax which treats both of them equally will benefit manufacturing sector and promote ‘Make In India’ campaign.
6. Improved tax governance as only one tax now needs to be collected.
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Some of the challenges related to the GST Bill are as following :
1. The major concern regarding GST is to decide the rate of GST. The concept of Revenue Neutral Rate could be used.(Revenue Neutral Rate is the rate which if applied will keep the revenue of state intact as it was before GST)
2. GST is an indirect tax and indirect taxes are regressive in nature affecting the poor more severely than rich. Service tax (indirect tax) has increased from 5% (in 1990) to present day 15%.Hence there needs to be a rate cap on indirect tax or else increasing indirect taxes would severely hit the financial conditions of the poor.
3. A robust IT system is required.
4. The voting power given to states in GST Council is a topic of debate as each state is given single vote irrespective of its amount of share in the total tax net.
5. State’s fiscal autonomy will be affected as they will be left with no taxing power. In the case of state-specific situations like attracting investments etc. it won’t be possible for the state to change the tax rates (One of the major reasons why world’s major economies USA and EU don’t have GST).
So, this is all you need to know about GST Bill. Comment below in the box if you have something more to add or share. Keep reading SAIKISITE.
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